The US Department of the Treasury (Treasury) on December 13, 2018 released proposed regulations (the Proposed Regulations) on the base erosion and anti-abuse tax (BEAT), enacted as part of the 2017 tax reform legislation. BEAT is effective for ‘base erosion payments’ — generally, deductible payments (e.g., interest, royalty, and service payments) made to non-US related parties — paid or accrued in tax years beginning after December 31, 2017. The regulations are proposed to be effective retroactively to this date. See our insight Many pharmaceutical and life sciences companies impacted by broad application of BEAT for more information.
Pharmaceutical and life sciences (PLS) companies should assess how certain provisions of the Proposed Regulations will affect their long-established intercompany transactions, potentially impacting their supply chains, intangible property strategies, and revenue models. Gathering and analyzing relevant data will be crucial in determining which transactions are subject to BEAT and assessing the potential consequences. PLS companies should consider creating data-driven processes to (1) timely identify which payments are subject to BEAT and (2) determine BEAT’s impact on contemplated changes to their operating models.
The Proposed Regulations both broaden and deepen the application of BEAT and could materially impact the current operating and supply chain models of many PLS companies. Some provisions, such as the SCM exception, provide a beneficial rule but also necessitate certain recordkeeping and documentation that PLS companies must implement.
PLS companies should assess their BEAT liability under the Proposed Regulations, keeping in mind that certain provisions may change when Treasury finalizes the regulations. These companies also should analyze whether their current internal reporting processes are designed to provide them with the data needed to assess BEAT’s impact in a timely and effective manner and, if not, consider establishing more robust processes.
Health Industry & Pharma Life Science Tax Leader, PwC US